Protecting Insurance Company Profits under Obamacare

New Orleans I had to read the article by Robert Pear of the New York Times three or four times to completely understand the contradictions that now seem to exist under the new Affordable Care Act or Obamacare. The headline said, “Employers with Healthy Workers Could Opt Out of Insurance Market, Raising Others’ Costs.” What’s the issue here?

The article seemed to highlight a contradiction somewhere between the chicken and the egg.

Facing the requirement that employers with over 50 workers mandatorily have to provide health insurance by January 2014, some employers who are not currently providing insurance are initiating plans to do so. I thought that was a good thing and how could it be anything other than a social benefit for the workers.

Some employers with relatively healthy and presumably younger workforces are initiating self-insurance plans rather than paying the exorbitant and escalating prices of private insurers. The Township of Freehold in New Jersey with 260 workers began self-insuring and said, “We expect to stabilize our rates and keep the money we save, rather than giving it to health insurance companies as profit.” That sounds exactly right to me.

In fact thirty years ago that is exactly the “what” and “why” of what ACORN did after a premature baby skyrocketed the group coverage rates from Liberty Mutual to unaffordable levels. We moved to create a separate fund fueled by the same contributions we were making to Liberty Mutual and paid out at the same standards they had used. We bought stop-loss coverage on the health fund against the re-occurrence of catastrophic claims and then several years later converted the plan to a Taft-Hartley multi-employer fund for various reasons. That fund paid for a score of children born to the staff and handled a raft of serious claims successfully until it went out of business with ACORN. We could do that largely because the initial group being insured was relatively young and the fund was allowed to grow with steady contributions as the organizations became larger and some of the group got older.

It seems this is now a problem. The concerns Pear was reporting were that small employers with younger workforces would do just as ACORN did, begin self-insuring and buying stop-loss coverage. Huh? Isn’t this still a good thing? The companies were not offering insurance and now are providing their workers with health care.

One issue raised in the article was that stop-loss insurers are regulated differently under the law than other insurers so that they can decline coverage to groups where they assess the risk as higher. In my way of thinking that means that they will be forced into the pool with everyone else. So what’s the problem?

The issue seems to be that too many relatively healthy groups might go outside of the private insurers’ shakedown game and therefore reduce their profits. If it became a movement for the healthy groups to go rouge on the insurance companies, then costs might rise and profits decrease for insurers because their groups are a little less healthy, according to this theory.

I’m not sure that this is actuarially the case or simply some Cassandra screaming. Many companies and employers don’t want to manage their own programs and pay the premiums to make this someone else’s problem, which the insurance companies are glad to handle. Self-insurance and stop-loss programs are not for the faint of heart, I’ll assure you.

We could have solved this with a single-payer system rather than one dominated and managed by the private insurance companies. Now this article claims the insurers may press for restrictions on self-insurance in order to continue to line their pockets.